Since option prices are available in the open market, they can be used to derive the volatility of the underlying security. Such volatility, as implied by or inferred from market prices, is called forward-looking implied volatility (IV). The index is more commonly known by its ticker symbol and is often referred to simply as “the VIX.” It was created by the CBOE Options Exchange and is maintained by CBOE Global Markets. It is an important index in the world of trading and investment because it provides a quantifiable measure of market risk and investors’ sentiments. The CBOE Volatility Index (VIX), also known as the Fear Index, measures expected market volatility using a portfolio of options on the S&P 500. It’s crucial to emphasize that the VIX correlates with market volatility, not causes it.

Key data points

As the range of strike prices for puts and calls on the S&P 500 increases, it indicates that the investors placing the options trades are predicting some price movement up or down. Typically, the performance of the VIX index and the S&P 500 are inversely related to each other. In other words, when the price of VIX is going up, the price of the S&P 500 is usually heading south. The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

The Market’s Fear Gauge Is Creeping Back Up

It is designed to be a measure of expected volatility over the next 30 days, and is often referred to as Wall Street’s “fear gauge.” Volatility is one of the primary factors that affect stock and index options’ prices and premiums. As the VIX is the most widely watched measure of broad market volatility, it has a substantial impact on option prices or premiums. A higher VIX means higher prices for options (i.e., more expensive option premiums) while a lower VIX means lower option prices what is natural language processing working and techniques of nlp or cheaper premiums. Instead, investors can take a position in VIX through futures or options contracts, or through VIX-based exchange-traded products (ETPs).

One of the most popular and accessible of these is the ProShares VIX Short-Term Futures ETF (VIXY), which is based on VIX futures contracts with a 30-day maturity. Some exchange-traded securities let you speculate on implied volatility up to six months in the future, such as the iPath S&P 500 VIX Mid-Term Futures ETN (VXZ), which invests in VIX futures with four- to seven-month maturities. Such VIX-linked instruments allow pure volatility exposure and have created a new asset class. Expressing a long or short sentiment may involve buying or selling VIX futures. Alternatively, VIX options may provide similar means to position a portfolio for potential increases or decreases in anticipated volatility.

S&P Dow Jones Indices: A Practitioner’s Guide to Reading VIX

However, the VIX can be traded through futures contracts, exchange-traded funds (ETFs), and exchange-traded notes (ETNs) that own these futures contracts. The second method, which the VIX uses, involves inferring its value as implied by options prices. Options are derivative instruments whose price depends upon the probability of a particular stock’s current price moving enough to reach a particular level (called the strike price or exercise price). This is to be expected since the average includes data from the previous, lower priced days.

The CBOE Volatility Index—also known as the VIX—is a primary gauge of stock market volatility. The VIX volatility index offers insight into how financial professionals are feeling about near-term market conditions. Understanding how the VIX works and what it’s saying can help short-term traders tweak their portfolios and get a feel for where the market is headed. The CBOE Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX). Because it is derived from the prices of SPX index options with near-term expiration dates, it generates a 30-day forward projection of volatility.

Certain VIX-based ETNs and ETFs have less liquidity than you’d expect from more familiar exchange traded securities. xglobal markets review by online casino city ETNs in particular can be less liquid and more difficult to trade as well as may carry higher fees. Examples include the CBOE Short-Term Volatility Index (VIX9D), which reflects the nine-day expected volatility of the S&P 500 Index; the CBOE S&P Month Volatility Index (VIX3M); and the CBOE S&P Month Volatility Index (VIX6M).

VIX® Index Charts & Data

A methodology was adopted that remains in effect and is also used for calculating various other variants of the volatility index. VIX values are calculated using the CBOE-traded standard SPX options, which expire on the third Friday of each month, and the weekly SPX options, which expire on all other Fridays. Only SPX options are considered whose expiry period lies within more than 23 days and less than 37 days. The first method is based on historical volatility, using statistical calculations on previous prices over a specific time period. This process involves computing various statistical numbers, like mean (average), variance, and finally, the standard deviation on the historical price data sets.

It’s simply a statistical measure of price changes for a security or an index. Greater volatility means that an index or security is seeing bigger price changes—higher or lower—over shorter periods of time. As a rule of thumb, VIX values greater than 30 are generally linked to large volatility resulting from increased uncertainty, risk, and investors’ fear. VIX values below 20 generally correspond to stable, stress-free periods in the markets.

1. Prices are weighted to gauge whether investors believe the S&P 500 index will be gaining ground or losing value over the near term.
2. While a high VIX often precedes periods of increased market turbulence, it doesn’t predict the direction of the market.
3. Beta represents how much a particular stock price can move with respect to the move in a broader market index.
4. These defensive healthcare picks from the Dow Jones Industrial Average are worth a look at current levels for investors seeking passive income.
5. For the major indices on the site, this widget shows the percentage of stocks contained in the index that are above their 20-Day, 50-Day, 100-Day, 150-Day, and 200-Day Moving Averages.
6. In theory, the direction of the moving average (higher, lower or flat) indicates the trend of the market.

Conversely, low VIX levels might suggest a market environment more suitable for aggressive investment strategies. In the last month, major stock indexes like the S&P 500 have been pulled downward as a result of disappointing earnings reports from big tech stocks. If you’ve been following financial news, you may have heard the word “volatility” being thrown around a lot — and you may have heard a reference to a volatility measurement called the VIX. As an investor, if you see the VIX rising it could be a sign of volatility ahead. You might consider shifting some of your portfolio to assets thought to be less risky, like bonds or money market funds.

Conversely, a lower VIX suggests a calmer market outlook with less anticipated price fluctuation. The formula used by Cboe to calculate the price of VIX is rather complex, and the price of VIX is updated live during trading hours every 15 seconds. To spare you the math headache involved with calculating the price, let’s look what are treasury yields and why do they matter instead at the data used to calculate it. The VIX index is specifically measuring expected volatility for another index, the S&P 500.